Postal Savings Bank of China is moving forward with its debut IPO

On September 28th, the Postal Savings Bank of China (PSBC) (1658.HK) finally made its IPO debut in Hong Kong after a lot of speculation.

It is the last big state-owned Chinese bank entering the stock exchange market, and its IPO is the world’s biggest in two years since Alibaba was listed in New York Stock Exchange (NYSE).

The offering price was almost at the lower end of its indicative range, HK$4.76, but nevertheless raised HK$56.6 billion ($7.4 billion) in capital for the PSBC. The stock traded in a tight range on Wednesday and closed at HK$4.77, a 0.2 percent rise, similar to the overall market benchmark Heng Sang Index (HSI). It may seem flat to the market, but considering the current market situation, it is not a bad result for the PSBC.

Most investors are concerned about the banking industry in China at the moment. The rate of non-performing loans (NPLs) has increased significantly in banks since last year and has even exceeded the government’s safety guidance. While the interest rate stays low, the margin for traditional banking business has been squeezed. Industrial overcapacity and economy slowdown have also increased lending risks.

However, the PSBC has the best asset quality among the big Chinese banks. With a market value of about $49.5 billion, PSBC's NPL rate is 0.81 percent, comparing to an industry average of 2.89 percent. The provision coverage of the PSBC is also much higher than other banks. In addition, the PSBC’s loan-to-deposit ratio was 39.6 percent at the end of March 2016, which means there is still growing space for more interest-related income.

Although the outlook for the banking industry as a whole is not overly optimistic, the PSBC’s future may be more promising due to its unique background. The finance market in the first and second tier cities is already saturated in China. However, the lower tiered cities and rural areas are still less developed and have great potential for financial growth. The Chinese government has also emphasized the importance of inclusive finance and promised policy support many times this year, even during the G20 summit in Hangzhou. Those remote regions are exactly where PSBC’s strength lays. With a large number of postal branches in small cities and the countryside, it is much easier for the PSBC to acquire more clients in the less competitive areas.

Overall, there many investment institutions hold bright expectations for the PSBC, including many foreign investors such as UBS, Temasek Holdings Pte, JPMorgan and Soros Fund Management, etc.. However, the retail investors will probably stay cautious for a bit longer. The IPO is more important for the PSBC itself, which is a signal from the youngest state-owned bank in China that it is ready to expand its business.